One of oil's most prominent bulls is sounding like a pessimist

By Alex Nussbaum and Simone Foxman on 7/5/2017

NEW YORK (Bloomberg) -- One of oil’s most prominent bulls is starting to sound like a skeptic.

The global crude market has “materially worsened" and prices may be stuck around $50/bbl or below, storied hedge fund manager Andy Hall said in an investor letter this week, reversing the optimistic tone he’d taken for months.

Crude prices are down 16% for the year, amid signs that rising U.S. output will undercut production cuts ordered by the Organization of Petroleum Exporting Countries and its allies. After a rally last week, futures for West Texas Intermediate oil slipped 4% on Wednesday after Russian officials said they were opposed to deeper reductions.

“When the facts change... " Hall wrote to investors in his Stamford, Conn., hedge fund, Astenbeck Capital Management LLC, in a July 3 letter obtained by Bloomberg News. “Not only did sentiment plumb new depths but fundamentals appear to have materially worsened."

U.S. shale drilling is expanding “at a surprisingly fast rate, thus raising the odds for significant oversupply in 2018, even if OPEC maintains its production cuts."

Hall’s career stretches back to the 1970s, including stints at BP Plc and legendary trading house Phibro Energy Inc., where he was CEO. This year, he’s consistently pushed against the bearish tide, arguing in investor letters that data showing rising oil supplies was incomplete and that a sustained rally was on its way.

'Rangebound'

U.S. producers have ramped up output and lowered their own costs faster than expected and growth in demand seems set to be lower than anticipated going forward, Hall wrote in the latest letter. While oil prices may recover somewhat in 2017, they look to be “rangebound for some time to come."

“At the start of the year, the anchor was thought to be about $60" for Brent crude “and rising over time," Hall wrote. “Today, it appears to be closer to $50 (and possibly still falling.)"

A message seeking comment from Hall wasn’t immediately returned. Astenbeck managed $2.4 billion as of the end of 2016, according to a previous investor letter reviewed by Bloomberg. The most-recent letter doesn’t mention the size of the Astenbeck fund or its latest performance.